NASHVILLE-Tennessee has shored up its teetering Medicaid managed-care experiment-at the expense of many who need it most.   Even critics acknowledge Tenn-Care is working better after state health officials boosted capitation rates and clamped down on the plan's private managed-care organizations.   But in seeking stability, the 30-month-old program has abandoned its promise to offer coverage to every state resident who needed it. It also has backed away from a philosophy that market forces alone would bring quality and efficiency.   The changes have left the $3.4-billion TennCare program stronger, if less ambitious. But the move away from universal coverage has created a new problem for the state: a re-newed need for the safety-net pro-viders whose subsidies were slashed or eliminated to help fund TennCare.   TennCare unleashed havoc in 1994, when then-Governor Ned McWherter, a Democrat, shifted some 800,000 Medicaid patients to private managed-care plans literally over-night and began enrolling 400,000 uninsured residents. Despite the enormous expansion, TennCare was to cost no more than Medicaid.   Problems materialized immediately, as thousands of patients were turned away from ERs, managed-care organizations (MCOs) fell months behind in payments to doctors and hospitals, rural patients couldn't find TennCare providers, and the Tennessee Medical Association sued to suspend the program. A fiscal crisis developed at the state's leading safety-net hospital. At least one Tenn-Care plan was caught fraudulently enrolling prison inmates, homeless people, and well-insured employees.   McWherter minimized TennCare's problems and promised that time and market forces would solve them. But when Republican Don Sundquist became governor in January 1995, he took a more hands-on approach.   Sundquist replaced TennCare chief Manny Martins, a career bureaucrat, with Rusty Siebert, a health-care entrepreneur who, he says, "became a millionaire writing programs to game DRGs." TennCare proved a tougher challenge, says Siebert, who retired in mid-May.   A major problem he faced was that the largest MCOs bled cash during the program's first year, despite receiving $74 million in special payments. Blue Cross, with about 600,000 TennCare enrollees, lost $8.8 million on the program in 1994 and $5.5 million in 1995. Access MedPlus, with about 250,000 enrollees, lost $14 million in 1994, but says it made $18 million in 1995. A 1995 GAO report found evidence that other TennCare MCOs were in trouble, deeming Tenn-Care's future "uncertain."   The state has increased scrutiny and regulation of MCOs, and it created a new watchdog over the solvency of all MCOs, as well as their compliance with contract provisions and laws. To prevent fiscal excess, the state now limits PPO administrative expenses to 10%. It has also tackled enrollment abuse with sanctions and criminal prosecution.   Physicians, who played a key role in electing Sundquist, acquired a formal outlet for their gripes via the TennCare Roundtable, which also included MCOs and consumer advocates. Most doctors remain anti-TennCare, but are gradually signing up with MCOs-though some specialists remain in short supply.   But the biggest change has been in capitation rates, which have jumped nearly 10%, with another 4% due in July. TennCare says rates are higher than California's for some patients.   The state can afford the raises because TennCare's enrollment is far below its planned limit of 1.5 million. Sundquist lowered the cap to 1.3 million, then halted enrollment of the uninsured, now reduced to 336,000. Medicaid eligibles and un-insurable residents can still join.   Since then, TennCare's enrollment has fallen by more than 100,000, to 1.177 million. TennCare says the program can't afford to reopen enrollment because it must pay for costly new treatments such as stem-cell transplants for cancer and protease inhibitors for AIDS.   TennCare continues to have problems collecting sliding-scale premiums from non-Medicaid enrollees, who owe at least $100 million. And the program still draws fire for shortchanging the disabled and chronically mentally ill, and for inadequate quality measures.   Despite its shortcomings, the new TennCare enjoys support from many advocates for the poor and uninsured.   "For all TennCare's faults, I get frustrated with people who criticize a program that's covered 400,000 more people," says Gordon Bonnyman, a public-interest lawyer who helped design the program. The TennCare Monitoring Group, whose members work for agencies that serve the poor, calls TennCare preferable to massive cuts in Medicaid. It also credits TennCare with boosting health coverage to nearly 95%.   That still leaves several hundred thousand Tennesseans uninsured, however, and the number will grow as long as TennCare enrollment remains closed. Worse yet, these patients may lose sources of charity care once subsidized directly or via Medicaid, says Robert Herrick, a consultant for TennCare MCOs. State officials plugged those funds into TennCare, saying the program negated the need for a large safety net.   But those patients are still going to the Memphis safety-net hospital, which saw revenues drop $42 million when TennCare arrived. To survive, the hospital has slashed staff, cut services, and begun turning away some indigent patients. -Jon Hamilton